Natural Gas: Weather Matters Again As Early June Outlook Is Mixed

|
Includes: BOIL, DGAZ, KOLD, UGAZ, UNG, UNL
by: HFIR Energy
Summary

We expect a +100 Bcf change in the storage report for the week ended May 10.

A storage report of +100 Bcf would be lower than last year's +106 Bcf and higher than the five-year average of +89 Bcf.

ECMWF-EPS is bearish 15 days out while GFS-ENS is bullish 15 days out.

Production has stalled on the back of maintenance, and demand is increasing.

The backdrop favors higher natural gas prices, but Mother Nature needs to lend a hand.

Welcome to the battle of the weather models edition of Natural Gas Daily!

Housekeeping item first.

We expect a +100 Bcf change in the storage report for the week ended May 10. A storage report of +100 Bcf would be lower than last year's +106 Bcf and higher than the five-year average of +89 Bcf.

Mixed Outlook for Early June...

Readers need to start paying attention to weather models again as the daily volatility will be tied to the fate of how each model projects CDDs. At the moment, both ECMWF-EPS and GFS-ENS are showing higher than normal TDDs going into the end of May, but the 15-day outlook is starting to diverge. GFS-ENS is bullish while ECMWF-EPS is bearish.

For long-time readers of ours, you will know from the past that the ECMWF-EPS is the superior model, so the market is much more fixated on what it's saying versus the American counterpart.

Source: WeatherModels.com

At the moment, ECMWF-EPS is showing a much more neutral/colder than normal scenario than GFS-ENS. And natural gas prices are reacting accordingly. But summer gas trading is different than winter gas trading. While the weather models are important, the price itself also is another important driver of fundamentals.

For the time being, we are seeing the surplus narrow a bit to a tad over ~4 Bcf/d.

There also are signs that lower 48 production is stalling a bit with maintenance-related issues dropping production recently.

Source: PointLogic, HFI Research

Total gas supplies have been more or less flat since the start of the year. Higher gas production has been offset by lower Canadian gas imports. Year-over-year supply gains are starting to narrow, as you can see, while demand is on the rise.

This is a much better backdrop for prices than a month ago.

In addition, Cameron LNG is starting boosting US LNG exports to an all-time high of ~5.9 Bcf/d.

Source: HFI Research

All of this echoes a more favorable backdrop for prices, but mother nature will also need to cooperate. For the time being, ECMWF-EPS remains the key focus of the market and the 15-day outlook is neutral to bearish.

Disclosure: I am/we are long UGAZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.